Don’t write Tesco off just yet

Supermarket giant Tesco continues to struggle. Investors had expected its results to be downbeat and they didn’t disappoint. The company’s full-year pre-tax profits fell by 7.7% to just over £3bn. Despite investing a lot of time and energy in trying to improve the fortunes of its UK business, trading profits in Britain fell by 3.6%.

The keenly watched like-for-like sales figures continued to deteriorate, falling by 3% during the last three months of the year as former Tesco customers did more of their shopping at cheaper rivals Aldi and Lidl. The company remains by far the biggest UK supermarket with a 28.6% share of the market, but that’s down from 29.7% a year ago.

Meanwhile, trading in Europe was truly awful, with profits falling by a third. And weak economies and tough competition mean that things are unlikely to get better soon. This has led to Tesco writing down the value of some of its European investments.

The one crumb of comfort for shareholders was that the dividend was held at 14.76p per share. But the payout is unlikely to increase until profits improve and Tesco is saying that times will be tough for a good while yet.

What the commentators said

It’s little wonder that Tesco is in trouble, said Kamal Ahmed on BBC.co.uk. A “chilling statistic” from a Retail Week survey this week showed that 45% of people questioned thought that Tesco’s prices had risen in the past year, while just 13% thought they had gone down. “Aldi and Lidl are likely to be laughing up their collective, nicely tailored German sleeves at that answer.”

Chief executive Philip Clarke has said that he has no plans to step down, despite calls for his head from some investors, said Graham Ruddick in The Daily Telegraph. And it would be “foolish to write them off”.

Tesco has “more stores and a higher margin than its rivals. Those are powerful weapons in the battle for grocery shoppers in the UK” – as long as Clarke can find a way to unleash them.

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